Royal Bank of Scotland's investment bank is likely to bow out after a "death by 1,000 cuts" and reform as a corporate banking operation.

The UK lender, which is 81% state owned, is preparing to announce a shake-up as part of a strategy review to be announced alongside its results next week.

A swathe of further cuts to the numbers of staff at its markets business is likely, on top of existing plans to shed staff through the disposal of its US retail and commercial bank Citizens and 314 UK branches under the Williams & Glyn brand, according to analysts.

Mike Trippitt, banks analyst at Numis Securities, said: “It’s been a death by 1,000 cuts for the investment bank. The battle RBS has been fighting is to remain relevant as an investment bank. It’s probably over in terms of it being a credible competitor as an investment bank, with the issue then becoming to ensure it is a fully functional corporate bank.”

He added: "I think you end up with something that looks like a corporate bank as opposed to a standalone investment bank. Given where RBS is at at the moment, it's probably the right thing to do."

The number of staff in investment banking roles is likely to decline further than was previously envisaged, according to Ian Gordon, banks analyst at Investec. Currently, 10,900 people work in the investment banking division, according to a note published by analysts at Citi this morning.

Gordon said: "Before today the picture of the future we were treated to was an 80-20 split. With 80% of the business being a UK-centric retail and commercial bank versus 20% from investment banking. I assume that 20% has got smaller."

Asked to explain the timing of the cuts, analysts pointed to the weaker-than expected recovery and an increase in capital requirements. RBS announced last month announced that it would report up to £8 billion of loss for 2013, weakening its regulatory position. Standard & Poor's said at the time that the bank's key capital ratio would be among the lowest of its peers.

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Mike Ingram, a markets analyst at BGC Partners, said that rather than shaping their business around what was effectively an endless supply of capital, banks like RBS were now capital constrained and had to "shape their business accordingly".

For a preview of what the RBS investment bank might look like in the future, Ingram pointed to Lloyds: "A UK focused retail and commercial bank with the investment bank very much playing a supporting role."